Chafee budget seeks sweeping changes

PROVIDENCE, R.I. (WPRI) - Governor Chafee outlined a sweeping budget proposal Tuesday that would dramatically change the way Rhode Island taxes goods, services and businesses while overhauling everything from highway funding to unemployment benefits.

Chafee's proposal would cut the state's total spending in the fiscal year that starts July 1 by about 5.5 percent, to $7.6 billion, compared with this year's final total of $8.1 billion. He would close what had been a projected deficit of $331 million for 2011-12 using a roughly even mix of increased taxes and lower spending.

The governor unveiled the proposal and the principles behind it in a televised address to lawmakers at 7 p.m. at the State House.

• Text: Read the governor's complete budget address

Chafee's proposal is now in the hands of the General Assembly, which usually passes a final budget in late spring. House and Senate leaders were "very noncommittal" about its legislative prospects during briefings with the governor's staff, Administration Department Director Richard Licht told WPRI.com.

Lower sales tax on more items

Chafee wants to cut Rhode Island's standard sales tax rate from 7 percent to 6 percent - lower than Massachusetts' 6.25 percent and the same as Connecticut's - but broaden its reach by taxing landscapers, newspapers, dry cleaners, nonprofit purchases and medical marijuana, among other goods and services.

As he proposed during the campaign, Chafee also wants to slap a new 1 percent tax on some exempt items such as clothing and boats. But he would continue to exclude food, prescription drugs and gasoline from either sales tax.

In an effort to boost the state's moribund economy, Chafee is seeking to change the way the state taxes businesses by lowering the corporate tax rate and restructuring the minimum tax on firms, currently set at $500 for those of all sizes, to decrease the amount paid by smaller ones.

Chafee would pay for that partly by raising more money from large corporations like Woonsocket's CVS Caremark and Wal-Mart by eliminating a tax credit for new jobs and blocking multistate firms from moving their local income to other states. He also wants to scrap the state's credit for film and TV production.

Residents would also pay a range of higher fees for things like parking at beaches and bouncing a check at the DMV. Chafee wants to split the roundup of delinquent taxpayers into two lists, one with the top 100 individual tax scofflaws and one with the top 100 businesses who haven't paid up, too.

Central Falls' deficits covered

Chafee, who was mayor of Warwick in the 1990s, also seeks to assist cities and towns which are struggling financially - whether they like it or not.

His budget would create a new Municipal Accountability, Stability and Transparency (MAST) Fund paid for with revenue from the local meals tax.

Communities would be eligible to receive MAST money based on the soundness of their budgeting practices and whether they adequately fund their pension systems. Failure to comply would result in a loss of state aid starting in 2013-14.

In the immediate term, Chafee is also proposing a $6.7 million bailout of Central Falls to cover its combined municipal deficits for 2010-11 and 2011-12.

• Report: Central Falls should be annexed

Revenue Department Director Rosemary Booth Gallogly emphasized the state taxpayer funding for Central Falls is only being provided because the strapped city has been frozen out of the bond markets, unlike other places like Pawtucket.

Pensions, roads, schools and hospitals

As expected, Chafee wants to hike the amount of state workers' wages put into the state's underfunded pension system from 8.75 percent to 11.75 percent. The state would not decrease its contribution. State employees are scheduled to receive two deferred 3 percent raises this year.

Chafee would end Rhode Island's reliance on borrowing to pay for transportation projects by beginning to pay for highway repairs and other infrastructure work with current tax money rather than debt. Transportation Department Director Michael Lewis said that would be the biggest change in the state's transit funding strategy in decades.

Chafee's budget also includes enough money to fully fund Rhode Island's new school funding formula. Education Commissioner Deb Gist had expressed concern he wouldn't find the additional cash needed to put the formula in place.

Other changes proposed by Chafee include a reduction in the generosity of unemployment benefits starting next year; a range of cuts in health and human services affecting nursing homes, hospitals, and other organizations; and a slight decrease in the number of state workers. The full proposal will be posted online at www.budget.ri.gov.

WPRI.com's Nesi's Notes blog will have more budget coverage tonight and all week.

tnesi@wpri.com